Solar lease vs. PPA
Both mean someone else owns the panels on your roof. The difference is what you are actually paying for — and therefore who loses money when the system underperforms.
The difference in one line
A lease charges you a fixed monthly amount regardless of output. A PPA charges you per kWh the system actually produces. Under a lease, a bad year is your problem. Under a PPA, it is the provider's.
Side by side
| Lease | PPA | |
|---|---|---|
| You pay for | Use of the equipment | Electricity produced |
| Monthly amount | Fixed and predictable | Varies with sunshine |
| Underproduction risk | Yours | Provider's |
| Maintenance | Provider | Provider |
| Federal credit | Provider claims §48E | Provider claims §48E |
| Suits you if | Good roof, want budget certainty | Shaded or complex roof, want output risk transferred |
Why this choice suddenly matters
Until 2026 this was a niche comparison, because buying was usually the right answer and the 30% federal credit made it obvious. That credit is gone for purchases. Third-party ownership went from a minority of residential sales to the majority inside a year, and most households now making this decision have never had to understand it before.
The escalator is the clause that matters
Both structures usually include an annual escalator — your payment rises by a set percentage every year, commonly around 2–3%. The entire pitch rests on utility rates rising faster than that.
If electricity prices rise 3% a year and your escalator is 2.9%, your saving barely grows across 25 years. If prices rise 2% and your escalator is 2.9%, the contract turns against you partway through and you end up paying more than the utility would have charged. Run both cases before signing — the comparison calculator lets you set the escalation assumption yourself instead of accepting the one in a sales deck.
Questions to ask before signing either
- What is the escalator, and can I have a flat version instead?
- What is the buyout formula, and is the price fixed or fair-market?
- Is there a production guarantee? If so, what does the provider pay if it is missed?
- What happens if I sell the house and the buyer will not assume it?
- Who removes and reinstalls the array if I need a new roof, and at whose cost?
- Will the system be placed in service before December 31, 2027? After that date, §48E is unavailable and the pricing behind the offer changes.
Common questions
Which is better, a solar lease or a PPA?
Neither is universally better. A lease gives you a predictable payment and you carry the production risk. A PPA moves production risk to the provider — you pay only for what the panels actually make — but your payment varies month to month. If your roof is shaded or oddly oriented, the PPA structure protects you.
Do I get the 30% tax credit with a lease or PPA?
Not directly — you never claim it. The company that owns the system claims the commercial §48E credit and reflects part of it in the price it quotes you. How much it passes through is not disclosed, and varies by provider.
What is an escalator and should I accept one?
An escalator raises your payment by a fixed percentage each year, commonly 1.9–2.9%. It is a bet that utility rates will rise faster than your payment. If they rise more slowly, your savings shrink every year and can turn negative late in the contract. A flat, non-escalating contract is worth asking for even at a higher starting payment.
What happens when the contract ends?
Typically you renew, buy the system at fair market value, or have it removed. Terms vary and the buyout price is often not fixed at signing. Ask for the buyout formula in writing before you sign — this is the most commonly glossed-over clause in the contract.
Can I sell my house with a lease or PPA on it?
Yes, but the contract has to be assigned to the buyer, and the buyer has to qualify and agree. This can complicate a sale. Ask what happens if a buyer refuses to assume it — the answer is usually that you must buy out the remaining term.
Related: what third-party ownership means, prepaid leases, and the 2027 deadline.